Protectionist trade policies under Trump may have lesser impact on India: Mark Mobius

Investment Guru Mark Mobius of Franklin Templeton believes that US President Elect Donald Trump's protectionist trade policies are a great cause of concern for emerging markets.  He, however, said that such policies may have a lesser impact on rather closed economies like India. 

He said, " If these policies (protectionist trade) are as severe as previously stated, the impact could be negative for emerging markets. They could likewise be harmful for global trade, and especially for countries such as Mexico, Vietnam and South Korea. Conversely, we believe such policies may have a lesser impact on those rather closed economies such as India and Indonesia, which are more dependent on domestic dynamics."

Mobius further said that despite the uncertainty surrounding his administration’s future policies, there has been some optimism around the election win for Trump. This has been focused primarily around the ideas of less regulation, more fiscal stimulus and the possibility of strong pro-growth policies that might expand the US economy. "If that is the case, and there is strong growth, emerging markets could benefit from that progression in the United States. Trump’s victory could also be positive insofar as relations between the United States and some emerging-market countries may be put on a more realistic footing," he said.

We are of the opinion that the fundamentals of emerging-market equities remain attractive and that valuations likewise generally appear favorable when compared with developed markets. We look forward to the opportunities 2017 will bring, he wrote.  

Crude Oil

Crude oil prices shot up during the fourth quarter of calendar year 2016 as 11 non-OPEC members including Russia committed to production cuts. He said, "We believe upstream oil companies are best positioned to benefit from higher oil prices, and we remain positive on a number of companies in China, Russia, Thailand, Pakistan and India."

Demonetisation

Mobius said that Indonesia and India underperformed amid increased uncertainty following Trump's victory, and fund outflows. 

India was further pressured by demonetisation measures. In an attempt to fight corruption, counterfeit currency, tax evasion, “black money” and terrorism, the Indian government scrapped usage of the highest denomination INR500 and INR1,000 currency notes from circulation. "Accounting for about 85% of the currency in circulation, the liquidity shortage caused by demonetisation is expected to negatively impact sectors and supply chains with high levels of cash transactions," he said. 

As a result, economic activity in the interim will be impacted; however, in the longer term, we expect the situation to normalise and India to continue on a more sustainable growth path, he said. 

"Additionally, we believe infrastructure-related sectors like cement are well placed to benefit from continued infrastructure and housing development. Pharmaceuticals and information technology remain areas of competitive advantage for India, in our view," Mobius wrote.